Work out strategy to mitigate oil problems
Feb 18, 2010
It is projected that at peak capacity, Uganda will produce 150,000 barrels of oil a day and earn the country $2b a year.
Timothy Opobo
It is projected that at peak capacity, Uganda will produce 150,000 barrels of oil a day and earn the country $2b a year.
Recent media reports indicate that exploitation of the fields may start by the end of this year.
However, contrary to this very optimistic time frame, Tullow Oil executives quoted in the Irish Times, pointed out that a lot still remains to be done, and should everything go on as planned, the earliest projection is that production could begin in a small way within two years.
While to some this may seem a long wait, it should actually be taken as a grand opportunity for the Government to further prepare the country’s economy to withstand the revenue expected to be accrued from this new sector. It is imperative that Uganda’s economy does not suffer the fate of catching the famously known ‘Dutch disease’.
The term was coined by economists to describe the decline of the manufacturing sector in the Netherlands after the discovery of a large natural gas field in 1959.
In other words, with high returns of revenue from the oil sector, if not well managed, the sector has the potential to generate negative consequences for Uganda’s economy.
The risk is that the oil sector stands to become a booming sector, attracting labour from the other sectors, namely the manufacturing and agricultural sector. The consequence will inevitably be a production shift towards the booming sector and other sectors will start lagging behind.
The challenge is that in a situation where oil begins to run out or the sector is hit by unfavourable market prices, the other sectors may not be in position to make timely recovery, thus a vicious negative impact on the country’s population.
The other aspect of concern stems from the extra revenue that will be brought from the resource boom. An increase in foreign currency inflow will inevitably affect the Ugandan shilling, prompting a decrease in price competiveness and thus the country’s exports, while increasing exports; consequently suffocating the non-resource industries.
Therefore, rather than simply rush in to oil exploitation; the Government should utilise the time gap to generate ideas on how to mitigate the possible negative impact the oil boom could have on Uganda’s economy.
The writer is an Irish aid fellow at the University College Dublin, Ireland
It is projected that at peak capacity, Uganda will produce 150,000 barrels of oil a day and earn the country $2b a year.
Recent media reports indicate that exploitation of the fields may start by the end of this year.
However, contrary to this very optimistic time frame, Tullow Oil executives quoted in the Irish Times, pointed out that a lot still remains to be done, and should everything go on as planned, the earliest projection is that production could begin in a small way within two years.
While to some this may seem a long wait, it should actually be taken as a grand opportunity for the Government to further prepare the country’s economy to withstand the revenue expected to be accrued from this new sector. It is imperative that Uganda’s economy does not suffer the fate of catching the famously known ‘Dutch disease’.
The term was coined by economists to describe the decline of the manufacturing sector in the Netherlands after the discovery of a large natural gas field in 1959.
In other words, with high returns of revenue from the oil sector, if not well managed, the sector has the potential to generate negative consequences for Uganda’s economy.
The risk is that the oil sector stands to become a booming sector, attracting labour from the other sectors, namely the manufacturing and agricultural sector. The consequence will inevitably be a production shift towards the booming sector and other sectors will start lagging behind.
The challenge is that in a situation where oil begins to run out or the sector is hit by unfavourable market prices, the other sectors may not be in position to make timely recovery, thus a vicious negative impact on the country’s population.
The other aspect of concern stems from the extra revenue that will be brought from the resource boom. An increase in foreign currency inflow will inevitably affect the Ugandan shilling, prompting a decrease in price competiveness and thus the country’s exports, while increasing exports; consequently suffocating the non-resource industries.
Therefore, rather than simply rush in to oil exploitation; the Government should utilise the time gap to generate ideas on how to mitigate the possible negative impact the oil boom could have on Uganda’s economy.
The writer is an Irish aid fellow at the University College Dublin, Ireland